Wesfarmers Annual Report 2011 Analysis Essay

Wesfarmers Limited is a widely known corporation, and has also become one of the biggest and oldest successful Australian national companies. According to Ronelle Richards (2016), Wesfarmers is Australia’s largest company, with its rank from a business research firm IBISWorld, based on its revenue. Basically, it has a large size with around 210,000 employees working for it. Also, the company is operationally diversified, including department stores, home improvements, supermarkets, and many other aspects closely related to production and the lives of people. (“Wesfarmers official website”)

Further, Wesfarmers is a competitive organization. Their major goal is to bring substantial benefits to shareholders. They ascribe their success and development based on the support rendered by their shareholders, thereby attracting approximately 500,000 shareholders for the purchase of its issued shares. At the same time, Wesfarmers takes all its employees into consideration. (“Wesfarmers official website”)

Wesfarmers strategically operates in the Australian marketplace. Wesfarmers is fully experienced. They have operated the business for almost 18 decades and their directors continuously expand the status quo. Additionally, they offer reasonable price for their products and services as well as built themselves on the good reputation of value for money, which allows them as first choice for loyal buyers and consumers. And they have good industry skills based on their nature in being outgoing and friendly.

Finally, in the midst of their weaknesses, they still see opportunities to increase profitability in spite of the increased demand for their business offering, and also expand their business coverage.

Company Research

Wesfarmers Company Summary

Wesfarmers is a diversified corporation, established in June 1914, with its origin traced back as a Western Australian farmers’ cooperative. It has operated as a small supplier with its operation and structure in the rural of Western Australia at the time. Over the years, Wesfamers has become one of Australia’s largest listed companies having its headquarters in Perth, Western Australia.

Its diverse business operations include, supermarkets, hotel, liquor, and convenience stores, home improvement; department stores – Kmart and Target; office supplies; with industrials division in businesses such as energy, chemicals, and fertilizers, safety and industrial products and coal. As part of other activities, Westfarmers has about 50% interest in investment house Gresham Partners and also interest in Gresham Private Equity Funds, with 50% interest in Wespine, one plantation softwood sawmill at Dardanup, in Western Australia, as well as a 24% interest in BWP Trust which majorly owns Bunnings Warehouses occupied by Bunnings Group Limited.

Summary of Information Obtained

Company Products

Westfarmers Limited owns a diversified portfolio of different businesses being operated upon. Their products and services span through the supermarket, gas processing and energy distribution, coal mining, hardware and department stores, chemicals and fertilizer, as well as industrial safety and product industries. Moreover, Westfarmers divides its operations into segments, including retail division, which has a range of its operations from the supermarkets and convenience stores to other hardware and major office supplies; industrial division with resources, chemicals, energy, and fertilizers; industrial and safety, which includes the supply of maintenance works, repair and operation, the packaging and safety of products to industry and public sector; and finally its interests in investment banks and other corporate organizations. (“IBISWord, 2015”)

Wesfarmers Management

Wesfarmers management and Board is a strong advocate of good corporate governance, committed to ensuring there is a satisfactory return to its shareholders and accomplishing its corporate governance obligations, roles, and responsibilities for the company and the stakeholders. Wesfarmers is managed by Richard Goyder, AO, who joined the company since 1993, and has been a part of the organization management since then. The daily running of the Company is a responsibility of the Group Managing Director, who is supported by the Wesfarmers Leadership Team. Based on the organization governance policy, the Board assigns the Group Managing Director all the powers of the management of the daily business of the Group, which is subject to the powers reserved to the Board and any particular delegations of authority approved by the Board.

Wefarmers Culture

Wesfarmers values are based on long standing objective in the delivery of a satisfactory return to shareholders. Their vision is to be a high performance resource company which delivers shareholder value through innovation, initiative, and growth. Additionally, their mission is to build and manage a portfolio of high quality, delivering excellent operational and also financial performance. For Wesfarmers to deliver a satisfactory return to their shareholders, the company developed a unique and highly-focused as well as disciplined business culture.

Westfarmers’ values take the people first, ensuring their safety, well being, and development is taking first. Also, in their ethical conduct, they act honestly and with integrity at all times. Meanwhile, in sustainability, Wesfarmers is committed to smoothly operating in a sustainable manner and also taking their environmental and social responsibilities very seriously. In organizational learning, Wesfarmers actively encourages diversity, excellence, and learning. And finally, in high performance, they are focused on the delivery of superior shareholder and also customer value. In summary, Wesfarmers follows four core values, which includes boldness, openness, accountability, and integrity.

Employee benefits

Wesfarmers offers their employees with the following:

Allocation of shares from Wesfarmers and participation in their annual incentive plan

A range of employee discounts, including related private health insurance and vehicles

Paid parental leave and a parents’ room provided in their Murdoch office

Benefits of employee wellness, including flu vaccinations and support to quit smoking

Provision of resources and support to assist employees to achieve a healthy balance between their work and family responsibilities

Education assistance

The access to an employee assistance program

Opportunities to salary sacrifice

Provision of discounts for tickets to Wesfarmers Arts sponsored events

Novated lease vehicles packaging

Service awards

Involvement in community event

Social club

Employee referral program

Subsidized professional association membership

Employee attributes

Wesfarmers has great reasons to make anyone join to work with them. Wesfarmers believe that the only genuine sustainable advantage is the performance and quality of their people. Every individual division of Wesfarmers operates as a different business and therefore has a unique culture. However, the employee attributes common to all the businesses include integrity, openness, accountability, boldness, being commercial, delivering results, and engaging people.

Wesfarmers Financial Statements Analysis

The figure 1 below shows the yearly income statement of Wesfarmers Limited.

Figure 1: Yearly income statement. (“Wesfarmers official website”)

Table 2 shows the total of the yearly balance sheet

All values AUD Millions

2015

2014

2013

2012

2011

ST Debt &Current Portion LT Debt

1,913

745

70

1,621

266

Short Term Debt

329

243

36

570

66

Current Portion of Long Term

1,584

504

34

1,051

–

Accounts Payable

5,761

5,417

5,999

5,420

5,059

Income Tax Payable

64

269

310

455

45

Other Current Liabilities

1,988

1,798

3,193

3,251

3,052

Accrued Payroll

1,042

967

1,025

1,035

954

Miscellaneous Current

946

831

2,168

2,216

2,098

Total Current Liabilities

3,726

8,229

9,572

10,747

8,722

Current Ratio

0.93

1.13

1.11

1.02

.17

Quick Ratio

0.37

0.48

0.58

0.55

0.60

Cash Ratio

0.12

0.26

.16

0.23

0.24

Long-Term Debt

4,615

4,320

5,709

3,881

4,613

Long-Term Debt excl. Capitalized Leases

4,615

4,320

5,709

3,881

4,613

Non-Convertible Debt

4,615

4,320

5,709

3,881

4,613

Provision for Risks and Charges

1,081

1,072

1,117

1,206

1,092

Deferred Taxes

(558)

(441)

(370)

(475)

(473)

Deferred Taxes – Credit

758

627

48

52

588

Deferred Taxes – Debit

1,316

1,068

1,018

1,027

1,025

Other Liabilities

199

119

735

851

1,058

Other Liabilities (excl. Deferred Income)

199

119

735

851

1,058

Deferred Income

–

–

–

3

2

Total Liabilities

16,379

14,367

17,781

17,237

16,073

Total Liabilities/Total Assets

39.79%

35.60%

40.59%

40.21%

38.82%

Common Equity (Total)

24,781

25,987

26,022

25,627

25,329

Common Stock Par/Carry Vlue

21,844

22,708

23,290

23,286

23,286

Retained Earnings

2,742

2,901

2,375

,103

1,774

ESOP Debt Guarantee

(31)

(30)

(26)

(31)

(41)

Cumulative Translation Adjust/Unrealized For. Exch. Gain

39

50

(26)

94

30

Unrealized Gain/Loss Marketable Securities

5

5

3

1

6

Other Appropriated Reserves

182

353

406

174

74

Common Equity/Total Assets

60.21%

64.40%

59.41%

59.79%

61.18%

Total Shareholders’ Equity

24,781

25,987

26,022

25,627

25,329

Total Shareholders’ Equity/Total Assets

60.21%

64.40%

59.41%

59.79%

61.18%

Total Equity

24,781

25,987

26,022

25,627

25,329

Liabilities and Shareholders’ Equity

41,160

40,354

3,803

42,864

1,402

Table 1: Wesfarmers Balance Sheet. (“The Wall Street Journal”)

Table 2: Below shows Wesfarmers’ financial ratio.

Name

Company

Industry

P/E Ratio TTM

18.07

21.03

Price to Sales TTM

0.92

1.12

Price to Cash Flow MRQ

23.25

54.14

Price to Free Cash Flow TTM

–

148.95

Price to Book MRQ

3.63

4.04

Price to Tangible Book MRQ

–

4.46

Profitability

Profitability: TTM vs 5 Year Average Margins

Gross margin TTM 30.46% 38.89%

Gross margin 5YA 30.56% 38.67%

Operating margin TTM 6.75% 7.4%

Operating margin 5YA 8.28% 7.77%

Pretax margin TTM 6.55% 7.35%

Pretax margin 5YA 7.88% 7.6%

Net Profit margin TTM 5.08% 5.6%

Net Profit margin 5YA 6.03% 5.77%

Per Share Data

Revenue/Share TTM 70.78 97.46

Basic EPS 4.28 5.82

Diluted EPS 4.28 5.8

Book Value/Share MRQ 17.9 28.19

Tangible Book Value/Share MRQ -19.83 15.72

Cash/Share MRQ 0.8 8.9

Cash Flow/Share TTM 5.25 2.06

Management Effectiveness

Management Effectiveness: TTM vs 5 Year Average Margins

Return on Equity 20.63% 20.32%

Return on Equity 5YA 21.68% 20.35%

Return on Assets TTM 7.37% 10.33%

Return on Assets 5YA 10.57% 11.2%

Return on Investment TTM 13.43% 17.11%

Return on Investment 5YA 18.83% 17.82%

Growth

EPS (MRQ) vs Qtr. 1 Yr. Ago -244.38% -44.7%

EPS (TTM) vs TTM 1 Yr. Ago 1.63% 6.22%

5 Year EPS Growth 7.75% 1.42%

Sales (MRQ) vs Qtr. 1 Yr. Ago 29.46% 11.49%

Sales (TTM) vs TTM 1 Yr. Ago 18.42% 9.38%

5 Year Sales Growth 8.3% 6.41%

5 Year Capital Spending Growth 46.3% 6.6%

Financial Strength

Quick Ratio MRQ 0.12 0.53

Current Ratio MRQ 0.66 1.41

LT Debt to Equity MRQ 73.64% 19.45%

Total Debt to Equity MRQ 129.07% 36.12%

Efficiency

Asset Turnover TTM 1.45 1.8

Inventory Turnover TTM 3.88 3.12

Revenue/Employee TTM 5.64M 3.57M

Net Income/Employee TTM 286.48K 196.80K

Receivable Turnover TTM 37.89 31.67

Dividend

Dividend Yield 3.29% 3.21%

Dividend Yield 5 Year Avg. 4.45% 3.68%

Dividend Growth Rate 2.28% 6.12%

Payout Ratio 59.49 67.41

Source: (“investing.com”)

Wesfarmers Strategic Management Project Report & Company Analysis

Wesfarmers brand logo

Wesfarmers Limited has developed their brand image, as a public company in the marketplace based on being ranked number out of the most recognized 2000 companies in Australia. The majority of Wesfarmers income is from the Supermarkets and Grocery Stores in the Australian industry.

Wesfarmers achieve their success through satisfying customer needs through providing goods and services on a competitive and professional basis; the provision of a safe and fulfilling work and operational environment for all employees, rewarding those with good performance, and the provision of opportunities for advancement; the contribution to the development and success of the countries where it operates by conducting present operations in an efficient manner, and by finding out opportunities for expansion; responding to all attitudes and all expectations of the communities where the company is in operation; placing a strong emphasis on the protection of the environment; and acting with integrity and strict honesty in dealings both inside and outside the company.

Wesfarmers’ values is to deliver a satisfactory return to shareholders. This principle guides the company to develop a unique, disciplined, and highly-focused business culture. Therefore, Wesfarmers adheres to their core values, including integrity, boldness, openness, and accountability. Regardless of the numerous changes in the organization, Wesfarmers continues to concentrate on the provision of satisfactory return to the shareholders, ensuring its shareholders and employees are well and living in a safe environment, the provision of excellent products and services to customers, proper care of the environment, and offering a contribution to the communities where they are in operation.

Furthermore, Wesfarmers manages its brand through restructuring of its department store businesses into just one division named Department Stores, and then each of them operating independently. This includes, Kmart, Target, Industrials, the chemicals, energy, and fertilizers, resources, as well as the industrial and safety arm.

Wesfarmers Product Analysis

Wesfarmers’ business operation is divided into the retail group, industrials, as well as industrial and safety.

First Retail:

Wesfarmers retail division offers products provided through the supermarkets and convenience stores, and also hardware and office supplies. The brands include:

Coles: This department operates as a retailer in the sales of groceries and other related household consumables via Coles and Bi-Lo supermarkets. The department also operates in over 2,300 locations all through New Zeland and Australia and also visible online through Coles Online. The company also makes sales of liquor through Liquorland, petrol through Coles Express, Vintage Cellars and 1st Choice stores, and a joint venture with petrol retailer Shell.

Kmart: This is another division specialized in retail of apparel and general merchandise such as entertainment and leisure items, toys, and home consumables. Kmart also deals in automotive services.

Target: The target division covers Target and Target Country brands, and also specializes in Homewares, apparel, and general merchandise such as home accessories, toys, and electrical.

The Home Improvement and Office Supplies division. This principally operates via the Bunnings and Officeworks brands. In fact, Bunnings has a chain of more than 223 Warehouse stores, about 36 Trade centers, and also 64 smaller format stores.

Industrials:

Resources: Westfarmers Resources division deals more in open-cut miner and metallurgical coal production with major interests in several Australian mining operations.

Chemicals, Energy, and Fertilizers: This unit specializes in the supplies of chemicals and fertilizers to the agriculture, mining, and industrial sectors. The subsidiary CSBP has its specialization in ammonia, sodium cyanide, polyvinyl chloride resin, ammonium nitrate, and wood-plastic composite products

Industrial and Safety:

This unit supplies, repair, maintenance, and operating, packaging, and safety products to the public sector and the industry. This unit includes Blackwoods, the supplier of industrial and safety products in Australia and New Zealand, and also a distributor for sales and marketing in the Asia Pacific region.

Finally, Wesfarmers has been able to manage its organization based on its sustainability in relation to its stakeholders and employees. On the business/product life cycle, Wesfarmers has reached its post-maturity stage. This is because Wesfarmers has been able to expand to a level of a global business and now competes with foreign suppliers and still sells in other countries.

Wesfarmers Customer Analysis

Wesfarmers takes their stakeholder very crucial to the organization and ensures their engatgemnt in the company is very vital. This is achieved through strict focus and listening openly to the stakeholders in which the customers are part of, in understanding their varying expectations. Every division of the organization communicates with its customers in the best way possible for the business, considering the needs of the stakeholder groups too. At the level of the Group, Wesfarmers takes their interests into consideration.

All the businesses of Wesfarmers have communication mechanisms for listening to their customers. Wesfarmers ensure to receive customer feedback to address every needed area relevant to the business. Additionally, customers can communicate with the organization through emails, websites, letters, personal contact, and telephone calls anytime of the year. Any customer who feels concerned or pleased about any of the activities in Wesfarmers’ businesses immediately communicates their opinions directly to Wesfarmers. Moreover, customer feedback received directly through the email is carefully monitored on each daily working day and moved on as quickly as possible, to the appropriate division which will best respond.

Wesfarmers Competition

The three major competitors of Wesfarmers Limited are:

Woolworths Limited

Metcash Limited

Woolworths Limited is one of the major competitors of Wesfarmers. They are regarded as Australia’s number one food retailer. They are also known as Woolies. They are also a diversified retailer that operates around 3,200 stores in New Zealand and Australia, and even over 1,000 supermarkets under the Foodtown, Woolworths, Thomas Dux banners, and Countdown. Woolworths also manages BWS and Dan Murphy’s liquor stores. Additionally, Woolworths offers gasoline for sales and leverages its distribution network for the provision of wholesale merchandise for the third-party supermarkets. (“Hoovers”) Moreover, Woolworths’ 165-odd general merchandise discount stores carry out their operation under the Big W name. Finally, Woolworths operates and manages about 395 consumer electronic shops under the Tandy and Dick Smith brand names, and also manages nearly 300 hotels.

On the other hand, Metcash Limited Company specializes in food and booze. These are the staples of the life of this organization. Metcash is a stellar wholesales grocery supplier and liquor distributor in Australia. Metcash’s IGA Distributor has about nine distribution centers, rendering their services to over 2,500 grocery stores having about 18,000 products, such as frozen foods and dry goods. In addition to this, it carries out distribution of fresh produce via IGA Fresh. Meanwhile, Metcash’s Australian Liquor Marketers supply over 13,000 liquor stores, hotels, and restaurants with a wider range of selected alcoholic averages from over 15 distribution centers. Additionally, the company operates around 20 Campbells Cash and Carry (CCC) warehouse stores and the distribution of goods through over 20 other Campbells locations. (“Hoovers”)

Wesfarmers uses their retail power to compete with its competition. Their retail business is established on historical and cultural practice of being aggressive business players. Wesfarmers push the market and their competitors very hard. Wesfarmers believes that strong competition makes the economy grow stronger.

Wesfarmers Growth Strategy

Westfarmers employs good strategies for the growth of their divisions. Based on the lower prices achieved in 2009 financial year, Coles have achieved more loyalty programs have been put together, supplier partnerships have been built, new formats for its stores have been rolled out, and new categories have been developed. (Langley, 2014)

The supermarket division employs its growth strategy through plans put together to deliver a better store network, focus more on fresh food, put more extension to “value leadership”, new channels, and services, simplify operations and supply chain, and also transform its liquor business. Coles’ (Wesfarmers’) focus is more on fresh food, including improved local offerings, and then building deeper, longer-term collaborative partnerships only with suppliers. Wesfarmers’ growth strategies include:

Accelerating sales density and increasing space growth

Driving effect fresh food growth

Extending the company’s value leadership

Simplifying and improving its supply chain, in-store, and store operation

Differentiating Coles via new growth channels

Transforming its liquor offering

Company Analysis

The Impact of Some Managers

Richard Goyder, AO

Wesfarmers : Financial Analysis Essay

1488 WordsMay 3rd, 20106 Pages

Wesfarmers : Financial Analysis

Wesfarmers main focus is very simple but an effective objective of providing a satisfactory return to its shareholders. The beauty of this objective is that it is measurable, and they seek to achieve a return on equity, which ranks Wesfarmers in the top 20 percent of Australia’s listed companies and able to manage the portfolio of businesses which make up the group with strong financial focus (Australian Securities Exchange,2008).

The ongoing success of Wesfarmers is based on shareholder focus, financial disciplines and goodwill and hence it has achieved significant financial growth in the preceding 6 years. It is a “ diversified Australian group, provides home improvement products, building…show more content…

However given the global financial and economic crisis, Financial experts have predicted that Wesfarmers debt levels are going to rise in the short to medium term of 2009 (Greenhalgh, 2008). This shows the ability of Wesfarmers to purchase assets using borrowed funds and thus lever up their total assets. The short to medium term debt will have to be refinanced in the coming months to assist it reducing any further risks.

Wesfarmers services a diverse customer base reflecting the broad range of industries in which the company operates, given this diverse operations of groups they have a large number of competitors including MITRE 10, BHP, RIO and Orica, Caltex etc ( FinAnalysis, 2009). However the major one of them all being Woolworths. Woolworths has established a clear lead in sales growth in recent years, and is estimated to hold approximately 27% of the market with Coles falling down to 23%. Woolworths has clearly demonstrated a lead in terms of supermarket margins and supply chain automation resulting in heavy price discounting, and they have reported a solid growth in margins from 4.7% in 2005 to 6.2% in 2007(Woolworths, 2008).

As Wesfarmers operate in various other industries and segments they have demonstrated a strong position in the market. General merchandising and apparel store Target has performed